Banking Supervision and Financial Services Directorate General

Banking Supervision and Financial Services Directorate General (BSFSD) is one of the key directorates in the organizational structure of Da Afghanistan Bank, aiming to ensure deposit security with the banks and enforce the applicable laws and regulations on the banking sector. BSFSD has been created at the end of FY 2003 upon approval of the banking law. The main purpose of creating this directorate was to ensure the implementation of banking law, regulations, guidelines, and instructions of Da Afghanistan Bank for securing the deposits of the customers. With the growth and development of the banks and financial institutions’ activities in the country, the organizational structure and activities of this directorate have been improved, and recruitment of new staff members through open competition has been started. In addition to long-term staff training programs organized by qualified domestic and foreign advisors/experts, supervision of the banks was underway under the oversight and guidance of the said experts. However, in subsequent years, this directorate has been further developed and promoted as the Banking and Non-Banking Financial Institutions Supervision Directorate General. At present, upon splitting the Non-Banking Financial Institutions Supervision Directorate in 2019 and the Islamic Banking and Finance Directorate in 2018 from the body of Financial Institutions Supervision Directorate General; BSFSD only supervises licensed financial banking institutions in the country and rate them given the CAMEL rating system and risk-based approach of supervision. Meanwhile, staff training programs, including online trainings and practical programs are organized based on needs both inside and outside the country to build their capacity and professional and supervision knowledge. These trainings were mainly focused on the issues related to supervision of the banks and financial institutions, covering some important topics such as financial analyses, risk analyses, governance, liquidity, management of weak banks, asset/liability management, and international best practices of supervision.

BSFSD proposes necessary amendments in the banking law and applicable regulations given the condition and needs, and regularly enforces such amendments on the banks after approval. In addition, BSFSD issues necessary actions and decisions through circulars to the banks for further improvement of their works and performance, if needed. Despite conducting comprehensive on-site supervisions and comprehensive AML/CFT supervisions conducting yearly for secured operations of the banking sector, this directorate conducts special and follow-up supervisions to ensure implementation of the applicable terms and conditions, unexpected cash supervisions, supervision and check-up of IT section and system of the bank and special audits. In addition to the above-mentioned supervision conducted physically by the on-site tasked teams in the banks, the financial position of the banks and the overall situation of the banking sector is analyzed and reviewed by the off-site supervision teams on a monthly, quarterly, and yearly basis. 

• Vision

Having a stable and trusted banking sector along with a resilient banking system is the vision of the Banking Supervision and Financial Services Directorate General.

• Mission

Improving the situation and performance of the country’s banks using the best supervision approaches and enforcing banking laws and regulations for securing customers’ deposits, maintaining a sound banking system, preserving the reputation and credibility of the banking system, and developing services and banking facilities in the country and regional level is the mission of this directorate.

• Objective

Objectives of the Banking Supervision and Financial Services Directorate General are to:

• • Ensure the implementation of banking law, regulations, guidelines, and instructions of Da Afghanistan Bank to keep people's deposits secured and prevent insecure banking activities;
  • Maintain a sound and robust financial system;
  • Maintain regular trust of the citizens and foreigners in the banking sector and economic stability; and
  • Establish and develop a sound supervisory and regulatory framework and adopt serious and effective banking supervisory measures.
• Duties and Responsibilities

The duties and responsibilities of BSFSD are in the following:

• • Issue banking license for eligible persons after completion of related documents and issue branch license for the banks;
  • Prepare and develop or amend laws, regulations, and guidelines of banking to prevent insecure banking activities;
  • Launch on-site comprehensive supervision to ensure implementation of the banking law, regulations, circulars and rating of banks according to the (CAMEL) rating system;
  • Put in place special, targeted, and follow-up supervisions to implement the imposed implementation measures and investigate specific cases;
  • Initiate unexpected supervisions of cash funds as needed by the Governor's Office and BSFSD;
  • Impose the enforcement measures, resolve banking problems, and improve the condition of weak banks; and
  • Off-site analysis and review to understand the financial position of banks and the banking sector on a monthly, quarterly, and annual basis.
• Organizational Structure:

After the merger process of the Banking Supervision General directorate, the Islamic Banking and Financial Services Supervision Directorate and Management of Deposits Protection Directorate, the BSFSD has 182 positions in its organizational structure, including one general directorate, three deputy directorates (Off-site supervision, on-site supervision, and regulatory deputy directorates), a quality control section, Financial Stability Section, Management of Deposit Protection section, secretariat, and an executive section, the details of which are provided in the following:

1. Off-Site Supervision Deputy Directorate

Off-site supervision deputy directorate is responsible for the implementation of the plan, action and approvals and decisions of the Supreme Council and the executive board of Da Afghanistan Bank within its sections, and also technically and academically responsible for the evaluation and supervision of the tasks and affairs of the relevant sections. The deputy director of off-site supervision consists of the accounting and reporting section, off-site supervision, Banks Resolution Section and Asset Assessment Management Section with the summary of duties and responsibilities of each section is separately provided below:

1. 1. Accounting and Reporting Section

This section is responsible to receive cash and deposit status reports daily, and financial reports on a monthly and yearly basis from the banks. After ensuring their justification and primary analysis, the aforementioned reports are submitted to other relevant sections of banking supervision for analysis, review, and subsequent necessary actions. In case the banks have not submitted the mentioned reports according to the requested sample and structure (They have submitted the wrong reports), the issue is communicated with the relevant bank through this section, with the corrected version will be shared with the relevant sections of BSFSD upon receiving the correct report.

1. 2. Off-Site Supervision Section

The main and fundamental duties of this section are to prepare integrated reports of the banking sector based on the individual banks’ reports and to prepare analytical reports on the status and performance of the banking system on a monthly, quarterly, and annual basis. In addition, this section analyzes and examines the individual financial situation of banks monthly and shares its reports with other relevant sections for further actions. Moreover, it reviews external audit reports and taking appropriate measures pertaining to the violations committed by banks. In terms of communication, this section is required to prepare necessary information and report to be published in DAB’s Bulletin and provide the necessary information to the National Statistics and Information Authority (NSIA) in accordance with the banks' financial reports.

1. 3. Banks Resolution Section

The major and fundamental responsibility of the banks Resolution section is to deal with the issues related to this section. Also, this section, in addition to their assigned tasks and dealing with the insolvency of banks, is responsible to at act accordingly through the insolvency sections of each bank and review its performance during their works.

1. 4. Asset Assessment and Management Section

The primary and fundamental tasks of this section, include effectively assessing the status of loans and collaterals, ensuring the assessment of properties under collaterals in terms of location, documentation, and real value, and analyzing the financial condition of bank borrowers.

 

2. Deputy Directorate of On-Site Supervision

Deputy Directorate of On-Site Supervision, is responsible for the implementation of the plan, performance execution, and implementation of the approvals of the Supreme Council and decisions of the executive board of Da Afghanistan Bank. In addition, other duties of this section are to academically and technically evaluate and supervise the tasks and affairs of the sections under this deputy directorate. In addition, during on-site supervision, this deputy must check the on-site supervision teams and ensure how these teams run their activities. This deputy consists of on-site supervision section, information technology and systems supervision section, special and follow-up supervision section, field supervision coordination section and AML/CFT Section with the duties and responsibilities of each section are provided below:

1. 1. On-Site Supervision Sections

The on-site supervision section, which consists of six supervisory teams, according to its terms of references and the annual action plan of the Banking Supervision and Financial Services Directorate General, supervises the country's banks annually. These supervisions take place based on the analysis of financial reports, off-site supervision reports, reports of enforcement measures section, and letters of external auditor. Meanwhile, these sections are responsible to prepare supervision plan, review internal policies of the banks under supervision, and present the relevant reports of the banks.

It is worth mentioning that during comprehensive on-site supervision on, all components of CAMEL such as capital adequacy, asset quality, management, earnings, liquidity, sensitivity to the exchange rates, are evaluated and rate according to the CAMEL rating system.

1. 2. IT and Systems Supervision Section

This section is responsible for supervising and checking the systems and IT departments of the banks and ensuring the accuracy of transactions and submitted reports.

1. 3. Special and Follow-up Supervisions Section

Special and follow-up supervision section is responsible to conduct targeted follow-up supervisions and ensure the correctness of the reports submitted for the implementation of the enforcement measures. At the same time, this section is responsible for carrying out special supervisions as needed.

1. 4. Field Supervision Coordination

The main responsibility of this section is to carry out unexpected supervision of cash funds, observe and review the activities of debtors and bank branches in the provinces throughout the country. The staff of this section, on behalf of Da Afghanistan Bank/Banking Supervision and Financial Services Directorate General, responsible for review and evaluate special supervisions issues in the provinces.

1. 5. AML/CFT Section

The responsibility of this section is to carry out supervision related to anti-money laundering and combating the financing of terrorism, AML/CFT follow-up supervision and special supervision of overseas transfers. The main purpose of conducting the said supervisions is to ensure compliance of the banking law, AML/PC law, counter financing of terrorism law, AML/CFT responsibilities and preventive measures regulation and other AML/CFT instructions and guidance.

3. Regulatory Deputy Directorate

Regulatory Deputy Directorate is responsible for the implementation of the plan, performance execution, and implementation of the approvals of the Supreme Council and decisions of the executive board of Da Afghanistan Bank. In addition, other duties of this section are to academically and technically evaluate and supervise the tasks and affairs of the sections under this deputy directorate.

This deputy consists of six sections, including licensing section, Regulation Section, Enforcement Measures Section, Sharia board affairs section, and Sukuk and Islamic insurance section. Duties and responsibilities of each section are presented below:

1. 1. Licensing Section

Issuing banking activity licenses to eligible persons is one of the main duties of Da Afghanistan Bank, carried out by the licensing section of this directorate. Before issuing an activity license to a qualified person, this section collects and evaluates a series of necessary information and documents, including collection of necessary documents and evaluation of shareholders, evaluation of the business plan, policies and procedures of banks, process request of the banks for interviews and approval of high-ranking board members, including the supervisory board, Management board, and the audit committee. Also, collection of necessary documents for the issuance of branches license, creation of counters for banks, and the issuance of licenses for the installation of ATM and POS machines are other activities carried out by this section. In addition, the process of the application of the external audit companies for obtaining permission to conduct banks’ supervision are among the duties of this section.

1. 2. Regulations Section

The foremost responsibility of this section is to prepare and develop banking regulations and procedures for carrying out effective supervision of banks. It is worth mentioning that the amendments of banking regulations and relevant procedures, taking into account of the situation and issuance of circulars to regulate banking activities are also part of the activities of the regulations section. Besides, research, preparation and development of Islamic banking products are also responsibilities of this section.

1. 3. Enforcement Measures Section

The main duties of this section are to implement special strategy to improve weak banks, establish enforcement measures, and review corrective plan of the banks according to the enforcement measures. This section is responsible to subject the banks to stricter disciplinary enforcement measures according to the provisions of the law, if the banks are not able to fully implement the established measures or the necessary actions against them. Also, among other duties, one of the tasks of this section is to prepare reports needed by the internal and external stakeholders in cooperation with other relevant offices and to prepare reports on the status of weak banks.

1. 4. Management of Sharia Board affairs

Sharia Management Board has been created for the purpose of coordination between the Sharia Supervisory Board, Islamic banks/Islamic banks and Da Afghanistan Bank Directorates in forming the Directorate of Banking Supervision and Financial Services in general. Management is involved in presenting Islamic banking policies, products, and Islamic banking guidelines before presenting them to the Sharia Supervisory Board, and this management is responsible for organizing the meetings of the Supervisory Board. Establishing coordination between all relevant institutions, including the Shari'a Supervisory Board and Da Afghanistan Bank administrations. In order to prepare the agenda of the meeting of the Shari'a Supervisory Board, collect and review Shari'a documents of Da Afghanistan Bank, policies and procedures of commercial banks and all issues that require Shari'a approval. Arranging the meetings of the Sharia Supervisory Board according to the agreed plan. Arranging the agenda of the meeting and sending all the collected documents to the Shariah Supervisory Board for Shariah approval. Checking the submitted documents and in case of problems and defects, sending them to the relevant departments for correction.

Management of Sharia Board affairs in general, creation of various facilities for approving products, policies and procedures from Sharia Supervisory Board of da Afghanistan Bank to another commercial bank.

1. 5. Sukuk and Takaful Section

This section has been established within Da Afghanistan Bank to coordinate with the esteemed Ministry of Finance and relevant departments of Da Afghanistan Bank related to Sukuk issuance, its main responsibilities include:

Utilizing idle funds effectively for the financial stability and economic growth of the country through Sukuk issuance. developing financial and Sharia compliant structures, along with preparing and organizing regulatory procedures as required for the issuance of Sukuk. Furthermore, it actively cooperates with relevant internal and external entities in facilitating the processes involved in the of Sukuk issuance, especially the esteemed Ministry of Finance, to ensure the efficient and successful implementation of the Sukuk issuance process.

These sections are directly reporting to the Banking Supervision and Financial Services Department and are as follows:

1. Quality Assurance Section

The quality assurance section, along with the deputies of the Banking Supervision and Financial Services Directorate General, is responsible for ensuring the quality of the tasks assigned by the Banking Supervision and Financial Services Director General and reports to the director. This section is required to evaluate supervision reports from a qualitative point of view and ensure their quality. In addition, processing supervision reports and sending them to the bank (after approval), with keeping the original version of the reports as the property and possession of the BSFSD. Moreover, other duties of this section are to integrate, develop, and prepare annual plans of the directorate and process or sometimes execute banks’ supervision plan under the guidance of the directorate.

2. Financial Stability Section

Generally, the main duty of this section is to analyze the banking sector of the country, prepare financial stability report and submit it to the National Financial Stability (NFS) Committee, chaired by the Ministry of Finance with the secretariat is holding by Da Afghanistan Bank. Financial Stability Section which coordinates regular and emergency financial stability committee meetings quarterly between Da Afghanistan Bank and the Ministry of Finance; is also responsible for collecting financial information from all the relevant departments of Da Afghanistan Bank, Ministry of Finance and other relevant entities to prepare the country's financial stability reports. Also, this section is required to prepare annual and semiannual reports on the country's financial stability and conduct stress testing quarterly. In addition, scenario analysis in different situations and analysis of issues related to the financial stability of the banking sector are among the main tasks of this section.

3. Management of Deposits Protection

 The Management of Deposits Protection section operates under the structure and framework of the General Directorate of Banking Supervision and Financial Services, aiming to protect public deposits in commercial banks and maintain banking stability. These objectives foster a sense of trust and confidence in the country's financial system.

All banks licensed by Da Afghanistan Bank are members of the Senior Management of Deposits Protection. Each of these banks pays a specific amount annually in monthly premiums to the accounts of this department.

4. Secretariat and Executive Section

The executive section, and Secretariat which are under the structure of the Banking Supervision and Financial Services Directorate General, are responsible for registering, sending, and receiving letters and official correspondence.